Whitbread PLC (LON:WTB.L), the parent company of Premier Inn, has reported its full-year results for the fiscal year 2024, showcasing the highest profits and cash flow since its focus shift to the hotel industry. The UK operations drove the strong performance with significant revenue growth and a record return on capital. Despite a softer UK market in the initial weeks of 2025, the company's performance outpaces competitors, and forward bookings have increased compared to the previous year. Whitbread's strategic initiatives in the UK and expansion in Germany, including a target to become the leading hotel brand, are key components of their growth plan. The company has also declared an enhanced final dividend and a £150 million share buyback program.
Key Takeaways
- Whitbread reports highest profits and cash flow since hotel industry focus.
- UK business is the primary performance driver, with strong revenue growth.
- Germany expansion includes adding 1,400 rooms and reducing losses.
- Whitbread aims to be Germany's top hotel brand and break even this year.
- Upgraded reservation system and cost efficiency program highlighted.
- Increased final dividend and £150 million share buyback announced.
Company Outlook
- Whitbread on track to reach 97,000 rooms by 2029, ahead of expectations.
- Strong margins and returns expected from room growth.
- Booking (NASDAQ:BKNG) position improving with commercial levers to drive performance.
- Comfortable with net debt-to-EBITDA ratio below 3.5 times.
- Dividend policy to align with earnings movement.
Bearish Highlights
- UK market slightly softer in the first few weeks of 2025.
- Room openings in the UK slowed due to pipeline tightening during COVID.
- No update provided on Germany during the call.
Bullish Highlights
- Forward bookings in the UK ahead of last year.
- Business demand remains resilient with strong peak leisure demand.
- Largest pipeline of growth in Germany compared to competitors.
- Reduction in hotel supply expected to support the market.
Misses
- Low room openings this year due to COVID's impact.
Q&A Highlights
- The company's £500 million investment includes integrated restaurants, not just room extensions.
- A £90 million profit improvement expected by FY 2029 from the investment.
- The company is selling a part of the freehold for low-performing restaurant sites.
- Whitbread remains focused on organic growth, with buybacks and dividends as the preferred capital use.
Whitbread PLC delivered a solid performance in its full-year results for 2024, propelled by the UK market's strong revenue growth and record return on capital. The company's strategic approach to optimizing its food and beverage offerings and extending its market leadership has contributed to this success. In Germany, Whitbread's expansion efforts are paying off with significant room additions and reduced losses, setting the stage for potential market leadership.
The company's focus on guest experience, room growth through extensions, and the retention of high-performing restaurants underline its commitment to sustainable growth. With a pipeline of 6,000 rooms in Germany and a cautious yet confident plan for disposals and capital allocation, Whitbread is poised for continued progress. The company's strategy to invest in core business while providing shareholder returns through dividends and share repurchases reflects a balanced approach to capital management. Whitbread's outlook remains positive, with a strong booking position and commercial strategies in place to drive future performance.
Full transcript - None (WTBCF) Q4 2024:
Operator: Good morning, everyone, and welcome to the Whitbread Full Year Results Call Q&A session. My name is Chach, and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to Dominic Paul, Chief Executive Officer, to begin. Dominic, please go ahead.
Dominic Paul: Thank you, Chach. Apologies everybody, we're starting slightly late. We just wanted to give people enough time to get through the registration process. Good morning, everyone. Thank you very much for joining our call for the full year 2024 Preliminary Results Q&A. And I'm joined by Hemant Patel, our Group CFO. Hopefully, you've had a chance to listen to our webcast and review our materials this morning. I'll start with a brief overview for those who haven't seen it before opening up the call for Q&A when Hemant and I will be happy to answer your questions. We've had a fantastic year and have delivered our highest level of profits and cash flow since becoming focused Hotel Group. Our UK business is the key driver behind this performance with our hotels outperforming the rest of the mid-scale and economy sector and delivering strong revenue growth. Our continued focus on delivering material cost efficiencies meant that profits and margins were significantly ahead of last year and our UK business achieved its highest ever level of return on capital of 15.5%. In Germany, we have continued to make really good progress. We added over 1,400 rooms this year and reduced our losses, reflecting the continued maturity of our estate and a much improved trading performance. We set out today a number of initiatives that will deliver a step change in our financial performance. In the UK, we're taking advantage of the structural decline we've seen in hotel supply by optimizing our food and beverage offer at a number of our sites to increase our room growth through our accelerating growth plan. This will grow our room's pipeline by 50% over the next five years and take our open UK states to over 97,000 rooms. These changes are expected to result in a one-off reduction to UK profit in full year 2025. However, by replacing loss-making restaurants with higher returning hotel rooms together with our strong commercial program, we will increase our market share and deliver increased profits, margins and returns. As you would have seen, the UK market has been slightly softer in the first few weeks of full year 2025. However, our out performance versus the market has continued, and our forward booked position is well ahead of last year. With our plans announced today, we have a clear pathway to extend our market-leading position even further. In Germany, with over 16,500 rooms now open and committed, we are focused on building our brand awareness and refining our trading strategies and are on track to break even on a run rate basis this year. This is an important milestone on our journey as we progress towards our target of 10% to 14% return on capital and becoming the number one hotel brand in Germany. In support of the first two priorities, we have created a great foundation for future growth, following the successful upgrade to our reservation system, which will increase our digital agility and unlock significant future commercial and operational benefits. At the same time, we have launched Premier Inn's biggest ever cost efficiency program, which will drive increased savings and support margin growth. Given the strength of our performance, our robust balance sheet and confidence in the outlook, we are declaring an increased final dividend and further £150 million share buyback, and this will take our cash return to shareholders since April 2023 to over £1 billion. Before we move to Q&A and in the interest of time, please could I ask you to try to keep to a maximum of two questions each. And with that summary, I'll now hand back to Chach to host the Q&A.
Operator: Thank you, Dominic. [Operator Instructions] Our first question today comes from Vicki Stern from Barclays. Please go ahead.
Vicki Stern: Yes. So first one's on RevPAR and specifically, your performance versus the market. So I see that you're talking about outperforming the market in accommodation sales by around 1%. But it does look like from a RevPAR perspective, you're more in line with that market RevPAR where you were obviously outperforming previously. So could you just update us on your confidence in terms of outperforming from a RevPAR perspective going forward, given the various levers you've talked about there? And then, perhaps, why has that been played through so much in Q4 and Q1 so far? And then the second one is just on the cash returns. I'm curious, how did you land on the £150 million being the right amount? And how are we thinking about cash return potential from here? It seems like you're sort of going back to doing more sales and leasebacks. I'm curious about your appetite there to turn the estate on an ongoing basis and potentially then have more sort of share buybacks going forward? Thanks.
Dominic Paul: Thanks Vicki. So let me answer the first part of that, but I'll also ask Hemant to come in as well on it. I mean, I guess, it's important for us to reiterate the point that the plans we've announced today actually give us real confidence about driving our returns up over the next few years. I mean the accelerating growth program, we think is really exciting. We've also announced as you know this efficiency program. But we've also got these commercial levers open to us which we all believe will be really great opportunities for us particularly with the new digital stack that we've now got. The brand is in really strong health in the U.K. Our value-for-money scores are actually at an all-time high. So we look at the Premier Inn business in the U.K. overall, and can see that we've got levers open to us and current performance that suggests we will continue to outperform the market. And as I said in my introduction we booked ahead -- well ahead the same time last year. So we do think that we will be able to continue to outperform the market. But actually kind of as or even more importantly, we're looking through that too and saying we are setting this business up for a really successful next few years with increased margins and returns. In terms of the -- and then, I'm sure Hemant will build on the RevPAR question. But in terms of the cash returns, I mean, I think Hemant has done a really nice job of laying out the capital allocation framework. And every time we've spoken through the results. We've talked about dividends and share buybacks within the context of that capital allocation program. And in the same way that we've done before, we've applied that capital allocation program. And that's how we've ended up with the dividend that we've announced today and a £150 million share buyback. Obviously, we will have another opportunity to work through the capital allocation program at our half year -- at half year results. But you're right about the fact that we've talked a bit more about recycling capital and doing some sale and leasebacks. We are seeing some positive signals in the market. We've got an amazing balance sheet. We've got a majority of our estate is freehold property. That does give us optionality, as to how we make sure that balance sheet continues to be efficient, and how we use our capital in the best way both to invest in the business to drive profitable growth, but also to reward our shareholders in the right way.
Hemant Patel: Yeah, just to finish off on capital allocation before I circle back on current trading. As Dominic says, we are -- we use that capital allocation framework and the way we talked about it. If I remind you with the context of remaining investment grade, we want to continue to invest in new room growth in selective M&A and high returning M&A into our estate. And then, maintain our very transparent dividend policy and then obviously return excess capital to shareholders on that basis. So by guiding this year to £175 million to £225 million of disposals -- capital disposals, that will help offset our capital program overall. It feeds into that allocation framework overall. We've set out the £150 million share buybacks for the first six months of this year we'll reapply the framework at half year, depending on the situation at that time. So we've been very transparent and very consistent where we apply that. Circling back in terms of current trading, the only thing I'd add to what Dominic was saying that clearly, as the largest player in the U.K. with the largest network and the strongest brand, we tend to do very well in periods of high demand and we tend to outperform the market both in absolute terms and also RevPAR in periods of high demand, despite the fact that we have got the strongest and largest network. That mitigated slightly during periods of low demand. You can see that as a pattern through the year. We have over the full year, FY 2024 outperform the market consistently in terms of year-on-year growth and in terms of our RevPAR premium. We've been ahead of the market as you say, the key of this, last first seven weeks. We're roughly in line in terms of RevPAR, but that's because it has been slightly weaker as a demand period overall for the market. As we -- as Dominic said already we're in a much stronger position now and our book position has been building improving over the last few weeks. So hence the confidence we have going forward. We are 30% booked for the first half of this year. And as Dominic says we have an occupancy level similar to this time last year with higher ARR. That's not a significant amount of proportion of bookings. So that's why we've got the confidence that actually as demand gets stronger seasonally through the next few months, we expect to continue to outperform and probably extend our outperformance to the market based on what history shows us.
Hemant Patel: Thanks, Vicki.
Vicki Stern: Very helpful. Thanks very much.
Operator: Thank you. The next question we have is from Jamie Rollo from Morgan Stanley. Please go ahead.
Jamie Rollo: Thanks. Good morning, everyone. Two questions please. First on the restructuring of food and beverage, you're keeping about 200 pub restaurants, I think. Just really wondering how profitable those are, what makes them different to the 240 selling or converting, and your confidence level that those 200 won't continue a declining trend like the ones that are going? And then on Germany, obviously, 400 rooms this year much, much slower than the last couple of years particularly in relation to the pipeline. What's driving that? Does it in any way relate to the impairment you took? And when do you see the expansion picking up a bit? Thank you.
Dominic Paul: Thanks Jamie. So let me cover the food and beverage question first. I mean I -- and at the half year I remember we had questions and discussions about that. Actually I think the solution we've come up with here is really neat for the business overall. I mean, what we did talk about the half year was it was really important to us that we protected the guest experience through this. The guest experience is clearly one of the factors that drives our outperformance in the market. That chart with the YouGov survey were in the top right-hand corner. It's really important that we protect that position, because at the end of the day it drives customer loyalty and it drives higher average room rate. So it's really important. And I think the solution we've come up with here absolutely achieve that. It will mean that we'll be able to actually come out this with a better guest experience. Our integrated restaurants generally have higher guest scores. At the same time as adding rooms into hotels where we know that there is effectively more demand than we can service at certain times of the year. So extensions are a lower risk, more profitable way for us to grow and we remove the drag of the lower-performing branded restaurants. So from that perspective, it's a win-win and it improves the guest experience overall. When we looked and we literally looked at this on a site-by-site basis as to how do we optimize the entire estate, we then the numbers of restaurants that we retain are 196. They generally are larger restaurants attached to our larger hotels. So they do perform better than the ones that we will be replacing and selling. And we're actually pretty good at running restaurants particularly the larger ones. So I think we'll be able to run those 196 restaurants well. Generally larger restaurants that support the larger hotels, and then the key thing that we're focused on now is executing this change now, which is managing the extension build program really effectively. Because I think that's going to be a really significant tailwind for our business over the next few years both in terms of the returns, but also in terms of the guest experience. And then just talking about Germany, your question on Germany. I mean you probably picked up from our tone, we're feeling good about Germany. We've got really nice momentum building there. We've got a local leadership team now in place. Our performance versus the market particularly in our more established hotels is picking up really nicely. So our momentum in Germany is good. You're right the number of room openings this year is relatively low. We do have 6000 rooms in our pipeline in Germany. So that comes on stream over the next few years. So we will see that those openings accelerating. Part of the reason it's lower this year is it's a bit of a hangover from COVID where there was virtually no development going on in Germany at all. So we've seen the same thing in the UK. And remember, our competitors don't have particularly strong pipelines of growth. So actually, we've got the biggest pipeline of growth in Germany. So you will see that number picking up. But probably most importantly is to say, we're not chasing growth for growth's sake. We are driving increase. We're focused on driving increased returns in Germany. Getting to that breakeven run rate and then getting to the 10% to 14% target that we've put into place and we're feeling good about the progress we're making there.
Hemant Patel: And I'll just add on the room growth in Germany. As Dominic mentioned, we obviously had a couple of years, where it was difficult to add to the pipeline. And the pipeline now is skewed to the back end over the next few years. It does mean that if we continue to add to the pipeline as we have been, the current run rate we've been in over the last couple of years we'll continue to grow that pipeline overall over the next couple of years. So as Dominic says, we're very returns focused. But we still see plenty of opportunity to grow.
Jamie Rollo: Thank you very much.
Dominic Paul: Thanks, Jamie.
Operator: The next question on the line is from Leo Carrington from Citigroup. Please go ahead.
Leo Carrington: Good morning, thank you. If I could ask on the UK specifically the phasing of the openings I think your guidance for 2025 is also for a bit of a slowdown. Can you elaborate on why is it the same reasons as in Germany? And then in terms of taking that 97,000 target in terms of the openings from FY 2026 onwards. Can you give any guidance on the phasing now? Or is that sort of straight line or thereabouts? And then secondly a follow-up on the RevPAR question. What do you see as the reasons for the softness or the weakness in demand year-to-date? And aside from the points about your bookings which is well taken why does this start to improve do you think?
Dominic Paul: Yeah. Okay. Thanks. So let me -- from a growth perspective. So you're right, our openings this year are relatively lower than they have historically been. That's primarily for the reason that Hemant just said really which is during COVID two things happened. One we tightened up our pipeline of future growth. We actually stepped away from some sites or optimize other sites where we could see better opportunities. But also, of course, in the middle of COVID, it was quite hard to get sites agreed and approved and developers weren't really developing sites. So our pipeline therefore this year is slightly lower than it has historically been. It's really important to underline two things though: one it is actually -- the situation is much more extreme with our competitors. We -- our pipeline particularly this accelerating growth program that we've outlined today is greater than all of our competitors put together. So we will profitably extend our market share position over the next few years; and two this of course is one of the underpins for the hotel market performance over the next four or five years which is wholesale supply in the UK is materially down versus pre-pandemic. And we are not seeing that hotel supply coming back to pre-pandemic levels until at least five years and frankly probably longer than that. So I think that will be one of the underpins in the UK hotel market over the next four to five years. The plan that we've announced today the accelerating growth plan enables us to profitably take advantage of that reduction in supply. So we'll increase our room's pipeline by 50% 3,500 rooms over the next few years. We will see those rooms come on stream most obviously during 2027 and 2028. At that point, we will -- it's really manageable growth for us within the context of an estate of over 85,000 rooms. But it also does mean we will be extending our hotels at a time when our competitors can't grow. And back to the point that I said to Jamie extensions are our lowest -- lower risk most high returning way of growing. So we think it's a really neat solution for growth. But most of that growth pipeline will come on 2027 2028 and 2029.
Hemant Patel: And we're going to get to 97,000 rooms is what we're saying by FY 2029. That level of growth taking our pipeline up to 1,500 rooms or so. As Dominic says with a lot of confidence because of the extensions, the extension plans which we can control. It's one of the advantages of how do we freehold a state as well. So we've got a lot of confidence we'll be able to continue to grow to that -- to those levels. Second question was on RevPAR.
Dominic Paul: Yes, I think the second question, Leo, was about what we're seeing in the market and the -- and are we seeing any change in patterns demand? Is that right?
Leo Carrington: Yes, exactly sort of -- the underlying reasons weakest year-to-date on the improvement.
Dominic Paul: I guess, a couple of things I'd say. One, if we kind of step back from it, this reduction in hotel supply, I think it will be a really important underpin for the hotel market over the next few years. And within the context of that, we're not expecting to see any material shifts in the demand situation overall. And we're seeing from our own numbers, for example, business demand is remaining really resilient. Actually, I think there could be an opportunity for that business demand to continue to increase. We're seeing peak leisure demand is strong. It's the off-peak leisure demand, where we've seen some changes in the pattern, but it's a very unusual time of year. So holiday dates have moved quite significantly this year versus last year. That sounds odd because, of course, Easter changes every year, but actually, it was materially earlier this year. I know some people in the industry have said the weather probably hasn't helped either in terms of some of that leisure demand and they might be right on that, we're not seeing any material shift in overall demand. And as Hemant said, actually, we're booked well ahead of same time last year. And that ahead position has actually strengthened over the last few weeks. Certainly, when we speak to some of our analysts, for example, they point to the fact that actually consumer confidence has got a little stronger over the last six months or so. So I think that will probably flow through to support the hotel industry as well as we go through the year. So kind of to answer your question, it's a bit of an unusual time of year overall. And we're not seeing really material shifts in hotel demand. And we still believe that this reduction in supply will provide a very, very strong underpin overall to the hotel industry over the next few years.
Hemant Patel: And of course, the context here is that we are certainly trading 50% higher than we were pre-COVID. We had -- it was a very strong year last year, particularly for that off-peak leisure demand as well. So one or two points here or there year-on-year in relative terms, is relatively immaterial. Clearly, the biggest focus for now is on those midweek and longer lead ledger where we see a lot of strength, and we continue to trade those really hard.
Leo Carrington: Okay. Thank you very much.
Dominic Paul: Thanks, Leo.
Operator: The next question is from Alex Brignall from Redburn Atlantic. Please go ahead.
Alex Brignall: Good morning. Thanks so much for taking the questions.
Dominic Paul: Hi, Alex.
Alex Brignall: The first -- hi. On room growth, obviously very difficult when you look at consensus numbers, but visible outlook has sort of 4,000 new rooms this year, four the next year and five the year after that, just on a group level. Obviously, your room rate this year has been much lower. And I think yes, that's going to be similar. So even if we add in the 3,500, it seems like numbers need to come down in terms of new rooms. So could you just talk about how the modeling of that drops through into numbers because that's a contribution from new rooms within profit contribution. It feels like Germany is somewhere where profits are more of a focus on growth right now. The second one is just in terms of RevPAR. So in January, you said that your bookings were ahead. But obviously, RevPAR has been down year-on-year kind of the last two months, like a meaningful amount. So it's come in worth having -- with you being ahead what's been amazingly consistent is just RevPAR versus 2019, which has kind of been in the high 20s, and we're coming up against very, very tough comps. So I guess my question is, why do you think that it's going to get better year-on-year and that sort of advanced forward booking position do you think I might be giving you sort of a bit of false confidence given you did have that situation in January and then you work down year-on-year. So is the closer in trading weak? Or is it to do with how you're managing your booking process to have more upfront and then you have a bit of a challenge thereon. Thanks so much.
Dominic Paul: Yes. Thanks, Alex. I mean, I think okay. So obviously a few questions in that. So on the first one in terms of room growth. I mean there was why it was important to us to put this milestone out of 97,000 rooms. So by full year 2029 we'll get to 97,000 rooms. That is ahead of what most people had in terms of their models and assumptions about our growth. The phasing might be slightly different. But overall, we feel confident looking at the numbers out there that this is showing increased growth versus what most people were expecting. And the other benefit of the increased growth is that that growth comes a strong margins and returns because of the way that we're getting that growth which is by adding extensions, higher returning and moving the drag the lower-performing branded restaurants. So net-net overall, we get to a position where we have put in a milestone today of growth which is greater than we believe most people expected. And the way we're getting that growth is really -- in a really attractive returns and margins way. In terms of the kind of bookings and the booking position, I think the key thing is that it plays into Hemant's point which is we as a business and a brand we perform particularly well versus the market in higher demand period and we're going into the higher demand period now. So the quarter one period that you allude to is generally the slightly lower demand area. So we would expect the outperformance to be relatively lower than we would do in a peak time. And ultimately we can only see the data that we can see. And the data that we can see says we are well -- but well ahead of last year that demand through most of our segments is looking resilient and that we've got commercial levers at our disposal whether that's our new technical platform, which enables us to increase the speed and agility of some of our digital activities or if some of our kind of brand levers that we can pull because we're the number one in the marketplace. We do have commercial levers open to us. And our pricing engine does operate at its best relatively during relatively higher demand times and those are -- that's more the market that we're entering now from a timing point of view.
Hemant Patel: The great thing Alex I'd say, I understand completely where you're coming from in terms of our book position when we talk about our Q3 results in January was looking positive at the time. But the pace the rate it was changing it was over that time period as you know through December for the last November-December into January-February we saw the market contracts slight -- sorry the outperformance reduced in the market year-on-year. So it was moving downwards at a time. What we're seeing now is for the past few weeks we've been seeing our booking position start to accelerate. Again you're right we can't know for sure what's going to happen going forward in the market. But as we see it we see that book position in good place and improving. And that's what's giving us confidence as well as the fact that actually we have these commercial levers that Dominic talked about will allow us to continue to outperform the market as we get into peak period.
Dominic Paul: And I guess the other thing to say is Alex as you've been following this sector for a long time you'll know this from pre-pandemic. I mean markets bounce around quarter-by-quarter it's hard to call it. Again if we step back one of the questions we got at half year was your returns are exceptional. Is this a high wall mark for your returns? And what we've outlined today enables us to say no this is not the high watermark for our returns. We are making structural changes to our business with accelerating growth plan which will drive increased returns over time. We have also -- and this is again we've got questions about this at the half year which is your budget business is so efficient. How can you continue to drive efficiencies? We've today announced the largest ever efficiency program as a business. And that's just by good old-fashioned tight running of the business which we are committing to do. And we're making really good progress in Germany. So the market numbers might bounce around a bit over the next few months. Let's see. We're in actually a good book position which gives us a level of confidence going through the year. But I think the bigger news today is the fact that we are clearly saying that we have got confidence in driving our returns and margins improving our guest experience as part of that through the changes that we've announced today. And we've got increasing confidence in Germany. You've just pointed the fact that hitting kind of breakeven is a key thing rather than growth. We are still growing in Germany. We are committed to keep growing in Germany but you're right. we are really focused on hitting and getting to profitability in Germany. We feel good about the trajectory that we've got in place there.
Alex Brignall: I guess just as a follow-on are you comfortable with the fact that U.K. Tier 3 pricing is kind of up mid- to high 20s and now U.S. Tier 3 pricing was down 7.5% and it's been down last 2019 by the way this is down natively year-on-year for the last kind of 13, 14 months even though the supply picture is about the same. Do you think that discrepancy in terms of over the last five years makes sense in a similar supply environment?
Dominic Paul: Yes, I think well I think there are some differences between the U.S. and the U.K. So, there is a greater range of competition in the U.S. And actually I think the supply situation in the U.K. is more marks.
Hemant Patel: We would consider yes we think the supply reduction is actually it's been sharper in the U.K. than the U.S. But I don't think you can just compare what might have faced the U.S. to that is we're looking at what we can see on the ground. And as we say we've been very transparent with how we're trading what the book position is which is what's giving us the confidence.
Alex Brignall: Thank you so much.
Dominic Paul: Thanks, Cheers.
Operator: The next question is from Richard Clarke from Bernstein. Please go ahead.
Dominic Paul: Hi Richard.
Richard Clarke: Good morning. A couple for me. Just the first one. I guess at the end of the year you've got to 2.9 net debt to EBITDA. It looks like that will probably tip over 3% next year if I add everything together. What is the current thoughts on sort of leverage ceiling? You should have allowed net debt-to-FFO. You don't seem to report that anymore. Is this a temporary position? Or are you happy being north of three turns of EBITDA? And then just second question what are you building into the disposal assumptions this year on those restaurant disposals? I guess if these are loss-making and they're going to lose the Premier Inn breakfast business how confident are you that you can find buyers for those for those restaurant sites.
Dominic Paul: Yes. Shall I just kick off.
Hemant Patel: Richard on your question on leverage. Yes, I mean yes we've said our stated ceiling on leverage is about 3.5 times, which working with our rating agency fit would allow us to remain comfortably investment grade. And we know that's important that will be more important over the next few years with nontrivial interest rates and as we refinance. So, we've been very clear about that as a kind of stated ceiling. Are we comfortable going over 3%? Yes, I'd say being below that 3.5% threshold is important. There's a range that we're working below that. We also want to give as well enough headroom to be able to take advantage of attractive high-returning free opportunities of potential bolt-on M&A as well as the capital plans that we're talking about in terms of core new room growth or refurbing state and indeed the accelerating growth frame we talked about today. We have other sources of capital obviously in terms of the freehold estate we have that can support that as well. And we talked about sale and leasebacks. So, yes, there's nothing there's no reason for us to not work within that kind of range below 3.5%. Clearly for the sake of some level of prudence not going to -- not be pushing that, but I feel very comfortable with where we are at the moment. We just announced £150 million share buyback. That's for the next six months, we'll be reapplying that framework as I've said at the half year and we'll see what that might bring depending on the situation we're in but it does mean we've got a little bit of headroom to work in. And then just into your second point just to kick it off and Dominic might say something else, but just in terms of the disposal of the restaurants, we've guided to overall disposal of £175 million to £125 million this year. We're not giving any more detail on exactly what we're expecting to see from the restaurant disposals within that, but that's made up of sale and leasebacks where we've got some confidence we're going to be able to transact with sale leasebacks in the first quarter of this year and into next year up to probably something like £70 million or so in Q1 something in that range. A few other development disposals, but also the disposal value of the restaurants we've also announced obviously that we've already sold 2021 restaurants to a consideration of £28 million. Not that that should be a guide to what we might see for the rest of the restaurants does show that there is a market there. We have got a number of assets here that I think that have got value. Yes, there are loss-making as a cohort. But within that group, I think there are restaurants that have got the potential. In fact, we think almost all have got potential for the right owner to have some value. And I think early indications from -- as we've started to market them would indicate that with the other that but we're right to think about.
Dominic Paul: So yes, just -- I guess, just closing out on that from a balance sheet perspective, we're in a -- we've got a very strong balance sheet and we've got a lot of flexibility, and as Hemant said, gives us the optionality about recycling some of that capital. And then in terms of the disposals, as Hemant said, we're underway now. We've got fairly conservative assumptions on the pace of disposals. We've got some great sites as Hemant said. In terms of your comment about breakfast, actually breakfast isn't a key driver of profitability for these restaurants. It's generally lunch and the evening meal which drives the performance. So we're underway. It was good to be able to announce that we've already completed 21 sites.
Richard Clarke: Okay. Maybe if I could just one quick follow-up on capital allocation. I guess your dividend this year grew pretty much in line with adjusted EPS. It feels like EPS is probably going to drop all things added together this year. What's the dividend policy in a year of declining EPS?
Hemant Patel: The dividend policy that we've stated is that we will move dividends in line with earnings. And we haven't said any more than that. And at the moment that is part of our capital allocation framework and there's nothing else to add really.
Richard Clarke: Okay. Thank you very much.
Hemant Patel: Thanks.
Operator: The next question on the line is from Tim Barrett of Deutsche Numis. Please go ahead.
Tim Barrett: Hi. Good morning, both of you.
Dominic Paul: Hi, Tim.
Tim Barrett: First topic was -- hi, there -- just to understand the modeling, the pub restaurant disposals a bit more detail. Eyeballing slide 38, it looks like it's about a £60 million uplift on the conversion -- on the new rooms. If I'm right that's about £17,000 a room, which is well ahead of the current estate. Is it simply the fact they're freeholds? Or can you just share a little bit about whether I've got that right? Second question, Hemant talked much about cost efficiencies, but should we be thinking about £50 million a year or about a 3% offset of inflation? And I guess could we think -- could we really be looking at pretty low net inflation in 2026 as a result? Thanks a lot.
Hemant Patel: Yes. So if I take those Tim. So in terms of disposals, yes, we are talking about 17,000 per room. That is about right. They are -- these are low return, low freehold. Obviously, there's no extra freehold cost rooms. So, they are relatively low-cost rooms for us to -- for us to build. And the -- if you -- as you say on slide 38, you can see that the majority of our FY 2029 improvement in profit of £80 million to £90 million. About -- yes, you're right about kind of like £50 million, £60 million of that is coming from those higher-returning hotel rooms. It is simply because, as I say, we have got -- we're confident because we've got very strong digital data to understand exactly the loss of revenue that we're seeing by not being able to service the demand that comes into these catchments. And we can clearly compare that to catchments where we do have very similar catchments, similar characteristics with high levels of room presence. So yes, we've got a lot of confidence in our ability to convert those. And clearly, to say, there's rooms with low freehold cost, because effectively we have -- we've got the buildings already or potentially going to convert the builders already. I should correct myself. It's about £14,000 EBITDA per room is what you should be modeling there. To your other point, which I've now forgot, on the cost efficiency side?
Tim Barrett: Yes, cost efficiencies.
Hemant Patel: Yes. So yes, the £150 million we've announced, I mean now slightly as you would expect a lower cost base, because we will have disposed of some restaurants. So as a percentage the £150 million over the next three years is the highest ever efficiency program that we've announced. But we've got a lot of confidence in our ability to deliver that. If I just give you a little taste of that and then I'll explain what your point in the net impact of it. The kind of things that we can do as part of electricity began. Clearly, we've got a large labor base. I think I probably said it for on these calls. It doesn't take much in terms of the housekeeping routine. A few seconds for it per room makes a big difference in terms of the overall labor bill. And the kind of things we're doing we are rolling out ID5 rooms, our new let newest rooms are much easier to clean. We're trying things like robot Hoovers, we're trying amenity trays, where for instance, tea and coffee, as it gets refilled in a room we're just sliding in a high trade that's been pre-filled rather than having to do each of the individual consumable items. We are investing in energy-saving initiatives such as moving gas grills, introducing electric drills, which are better for environment obviously, but also reduce costs, we're reducing IT costs. We've got a strong procurement improvement program as well. So cost has to be part of the cost base, we've got strong initiatives. And we've got a lot of confidence we have to deliver this level of gross savings. You're right, depending on what happens with inflation and obviously, inflation is forecasted the next year to kind of come down. We would expect to see therefore, our net levels of inflation become lower. We're not saying exactly what that would get because it very much does depend on that inflation levels but the £50 million – so £150 million rather over three years is based on our expected cost base and how it's going to grow. And so it's an absolute number. And therefore, how do you see if inflation levels are lower than our cost savings will be – will potentially fully offset – to offset those to reduce at a much lower level of net inflation into potential deflation. But it does very much find on what those kind of gross inflation levels look like.
Dominic Paul: I think, Tim, that's why – I mean that's why we think what we've outlined today is so powerful. I mean the accelerating growth program enables us to add capacity at a time when our competitors are really struggling to add capacity at very strong returns. Because as Hemant says, their extensions. We've got a very clear picture of the demand situation for extensions but also that they're our highest returning way of adding growth. And we're removing the drag of the lower-performing restaurants. So it's a double advantage there. We've also got levers to continue to drive the top line performance of this business but we're not being complacent about that. That's why we've also announced our largest ever efficiency program, which I think will do two things: one, I think it will drive increased margins and returns over time; it also gives us that fuel for profitable growth overall. But I think that's why today we think what we've announced is such a powerful set of initiatives.
Tim Barrett: Understood. Thanks very much.
Operator: The next question is from Ivor Jones from Peel Hunt. Please go ahead.
Ivor Jones: Good morning. Can I just check a couple of points on returns on the accelerated growth plan and sort of following on from what Tim said, £500 million for 3500 rooms seems to be £140,000 of room on space really owned which seems high. So I feel I must have got something wrong or is that the very upper end of the cost and – and then related to that if I – not £25 million of the £80 million of targeted returns and £25 million coming from the pub improvement and I end up with £55 million of returns on £500 million, again I'm getting to sort of 10% cash return on cash expected. Is that the bottom end of a broad range in terms of your expectations? Or have I got those thumbs wrong? Thank you.
Hemant Patel: Thanks, Ivor. Yes. Let me – yes, let me just explained. Yes so the £500 million isn't just the cost of the room, it’s the cost of creating integrated restaurants across all of those what 240-odd – 240-odd sites, where we are either converting or reducing – or either converting or disposing of the restaurant. So yes, you're completing two things there. The actual cost in terms of the extension, the extension part of that cost is much more efficient than new rooms. We had a new hotel because obviously, there isn't a freehold there's the whole building to move in. So that's one thing. The other thing is yes, the £25 million is a one-off cost this year – net cost this year made up of the disruption that's going to be caused for – through the restaurants that we are going to sell. So we expect to see disruption and therefore, reduced revenue from those restaurants while we are selling them. We expect to also as, we are converting restaurants to the integrated branded restaurants, the integrated restaurants we are going to see a reduction in sales, before we've seen a full reduction in cost. So, there's a timing part there. Once we are through that and over the next couple of years, so it will be this year and into next year. Next year that £20 million £25 million will have reversed. So, we'll be net flat to -- as an overlay, so not doing -- do nothing as it were will be net flat because by that time we'll -- the loss making restaurants, we'll have sold them all and we will start to see the benefit of those coming through offset by the final transitory costs that we have in next year. The year afterwards, then we start getting to the £40 million or so improvement in PBT in FY 2027, which will be about £30 million or so of the reversal of the loss -- from the loss-making restaurants because we sold a lot of those and we'll start to see the benefits of the expansion coming through. And then finally, at the end of this £80 million to £90 million will be both at reversal loss, but also the benefit of the extension coming through when we get to 3,500 rooms open in FY 2029. So that's the way to think about it. So I think you're netting off the loss assuming -- the original £20 million £25 million assuming continues forward. It doesn't. It's reversed. And it's net all everything….
Dominic Paul: I think Hemant it will be £90 million uplift, £25 million is coming from not having the loss-making restaurants. So £55 million coming in to the £500 million investment.
Hemant Patel: Yes. So, nor the £500 million isn't just the extension, cost as part of it. So the way I'm thinking about this, we're investing £500 million we're going to make £90 million more a year overall, just in terms of overall cash improvements. As part of that the extension, part of that is say, £50 million £60 million of that uplift in the end, and then part of that £500 million we were to look at it. I'm very confident that what we're doing a, is going to be blocky accretive for the business in both parts of it, in ag in each part of it as well. I'm also very confident it's really low risk. Removal of a loss-making business unit. We know exactly, what that looks like. And clearly, we've got as I said, very good data in terms of understanding, how extensions will work because we've got the history being -- knowing exactly, how extensions work and very strong data in terms of digital data that tells us where the demand is that we're not able to service. Hope that makes sense.
Ivor Jones: Can I just press you one more time on this FY 2029 profit would have been £25 million higher, if you just shut the restaurants. So you're only showing a £55 million improvement relating to the £ 500 million. I'm trying to see, if you're going to say that is a low-end expectation you've given what you said about the high return on extensions.
Hemant Patel: Yes. You're assuming the £500 million is entirely expensed if not, it's also creation of integrated restaurants.
Ivor Jones: I guess your £500 million to get the £80 million return?
Hemant Patel: It's £500 million to £80 million to £90 million return, yes.
Ivor Jones: £25 million of which you would have got simply by shutting the restaurants, and investing in the redundancies.
Hemant Patel: But we would have had to create integrated restaurants. So, some of that capital, the capital would have been lower if we, if we just shut the integrated restaurants we would still have to invest capital to – sorry, if we just shut the branded restaurants, we would still have to invest in integrated restaurants, we'd have to spend some capital to do it.
Dominic Paul: And I guess, you're probably -- you're scratching at is, a bit of inherent caution in the numbers that we put out yes, of course, always. Because, we like beating numbers.
Ivor Jones: Thanks. Thanks, Dominic.
Operator: The next question is from Estelle Weingrod from JPMorgan. Please go ahead.
Q – Estelle Weingrod: Hi, Good morning. Just two questions from me. I mean, the first one on the new plan and to come back on your last point Dominic, how conservative are you in your assumptions? I mean does it include some potential disruptions, on the existing rooms at the time of the conversion-related construction works for instance? And the second question is on Germany. Can you just update us on the latest development? I know you've been trying a few things there, like the use of OTAs and trading engines and so on. And perhaps, your views on ISG plans to expand further in Germany. Thank you.
Dominic Paul: Estelle, can you just -- make that -- I didn't catch your final point there. What is your plan did you say ISG – Oh the ISG. Yes
Q – Estelle Weingrod: Yes…
Dominic Paul: Yes. Okay. Got it. Got it Estelle, thank you. Yes. So I think I mean I think as a business as Whitbread, we are longer term assumptions and milestones we put out always have an element of caution around them, because I think we believe that's appropriate. All of that said, the plans that we've announced today we've got really good data to support the assumptions and why we feel so confident about what we've put out today. So to your point about do our numbers assume some kind of disruption for example, we are really well-run business operationally. So we have got very tight plans in place to support those restaurants that will be announced today that we'll be selling. We've got squads of teams going around to help any sites if, for example, we have any labor shortages in any areas, we've got squad setup to support those sites to ensure that we continue trading okay. In terms of the assumptions about the extensions, we've got really good data on this. We've been doing extensions for years. We can see exactly the impact that an extension has from the guest score perspective and then both during the building period and then coming out of that building period. Because of course remember at the end of this we end up with a materially in harm’s guest proposition, which will support our drive to increase revenue and bookings from our guests in the future. So we have modeled it based on data that we've got that we've got built up actually over years of history. And as Hemant said this is one of the reasons why we can say with confidence that this plan will work, because we have got a well-trodden path of adding extensions to successful hotels and we can see the performance of those extensions. It's why it's our lowest risk highest returning way of leveraging growth. So yes the assumptions are data-led and we've put that together very carefully in the model. In terms of Germany, I mean you're right we've discussed today about increasing confidence in Germany. That's been driven by a few things. One let's just look at the data and our more mature hotels now are outperforming the EMS market in Germany, which is great and it shows a really good trajectory over the last six months in particular. That's being driven by a few things. One we we're building scale in Germany. So we are getting better known with 59 hotels now open, and 30 more in the pipeline. We're trialing wider distribution. The early signs are really encouraging, but we're going to go through a full customer cycle to ensure that the final decision we make is absolutely data led, but the early indications are encouraging. The other element of the Booking.com trial that is really interesting is looking at the guest scores. Our guest scores of Premier Inn and Booking.com are generally higher than our competitors. That's based on quite a lot of guest data. That's really encouraging. It shows that our core customer proposition, its working really well in Germany. And as we widen our distribution and pull our commercial levers, we're seeing that performance improve. And we've also with a local leadership team now in place we're moving forward with confidence about how we build the brand around the edges of sleep and the things that have made us famous in the UK. So we'll be starting our first brand campaign, which we're doing digitally to make sure it's efficient over the next few weeks. The ISG news you allude to is buying a business that's going to add capacity. I guess, from our perspective, it underlines why growing in the hotel industry is actually quite challenging. This is taking existing hotels. It's not adding more supply into the hotel market. It's taking existing hotels and re-branding them over a multiyear program. I guess, what it does do is underline that quite a few players at the moment are looking at Germany and seeing how attractive the market could be. That's what ISG looking to expand in there. That's why Motel One continues to perform well and look to expand. So I think actually, it reinforces our view that Germany has got good potential. It also points the fact it's still a really fragmented market. There's no clear market leader there, which is an opportunity. It's not adding more supply into that market. And I guess it adds to our overall confidence about, a, Germany being a great market and, b, us building the right level of momentum in that market.
Estelle Weingrod: Well, thank you very much. Very clear. Thanks.
Dominic Paul: Thanks, Estelle . We have only got time for just one more question.
Operator: Yeah. Okay. Thank you. Thanks, Dominic. For our final question today, then we have Jarrod Castle from UBS. Please go ahead.
Jarrod Castle: Great. Thank you. Some topics hashed. But -- just interested, when you sell the restaurants, are you selling a part of the property? Or are you doing a leaseback? And if you're selling a part of the property that the restaurants are, how you're valuing it or if you're doing a leaseback, how are you calculating the value to base the rental on? And then secondly, you obviously think buybacks are better than M&A at the moment. Is that because there's no opportunities or because the prices aren't right? Thanks.
Dominic Paul: Yes. Let me take the second part of the question first, actually, on M&A. I mean we're really disciplined with M&A. We have done some M&A in Germany. We recently did the purchase of the 6 hotels, the Acom purchase, which will actually worked well for us and is working well for us. So we continue to look for opportunities like that. There are some large M&A opportunities in the hotel market at the moment. The prices are really, really high that people are talking about. We wouldn't be bounced into doing M&A at the run price that's at the wrong price. So it's really important, we think, to be disciplined. We've also got great organic growth opportunities for us. I mean, we've underlined today that we think there's the growth potential to get to 125,000 rooms in the UK. That's a growth of nearly 50% compared to where we are today. And we put the 97,000 room target milestone in there for full year 2029 to show how serious we are doing that. I think we've come up with a really innovative way to get that growth and there's more growth opportunity in Germany. So the first thing you said, we've got organic opportunity. Interesting M&A comes up at the right kind of price. We always have a look at it, but it's got to fit our investment criteria. And at the moment, we think investing in our core business and driving what are record returns, and we think those returns are going to continue to increase. And actually, giving returns to shareholders through dividends and share buyback is appropriate. And I think that shows a good capital allocation policy in operation. I think in terms of the question about the sites. Yes, in most and let's take the 21 sites that we have sold for £28 million. We're selling a part of the freehold for those sites. Again, it's very clearly find hotel versus a restaurant. So we sell the little parcel of land at the restaurant itself is on. Again, this will be doing that deal will be highly returns accretive for us. If we're selling the site, it means that an extension doesn't work for us at that point. It doesn't work for us at that site and that can be for various different reasons, normally planning-related and site-specific related Therefore, the most efficient use of that freehold land is actually to sell it for at attractive market rate and that's why we're taking the approach that we take.
Hemant Patel: Yes. And as Dominic said, the vast majority of our sites are freehold. There are a few lease holds where we would need to potentially sublet them effectively short lease hold sold, but most of them are free long leaseholds. We are quite more practiced at doing this. We've sold pub restaurants in the past. We have some co-located restaurants that we did own once. And so we're very, very practiced at being able to pass off the land the valuation methodology. We're working with a property consultant effectively, who will value these sites based on fairly stated methodology, based on the turnover of the site based on the size [indiscernible] the actual EBITDA and the TRS EBITDA and what that market rent and market value might look like. So it's a fairly well assumption of topology in the industry. You obviously get that, we understand independently. And then it becomes a question of obviously depending on the buyers that are out there as to whether we've got to fill that price or mention of out. So, I would say, we're confident, we're going to be able to -- as I say it's confident, we're going to be able to sell these assets and then we've got a few four back options anyway.
Dominic Paul: And remember, this is 126th sites that we are looking at selling out of a total state of 850. So actually, the vast majority of our sites are unaffected by the announcement today and the sites that are affected are sites where we believe there will be a material improvement in returns by making the changes that we've announced today.
Jarrod Castle: Okay. Thanks, very much.
Dominic Paul: Okay. Thank you.
Dominic Paul: I think we're out on time. So that was probably the last question. So I'd just like to thank everybody for their time today. You know where we are. So I'm sure, some or many of you have got follow-up questions, that's our job to help answer those questions. So we're available today and over the next few days to help answer those questions. But we really appreciate your time today. Thank you very much.
Operator: Thank you everyone. This does conclude today's call. You may now disconnect your lines and enjoy the rest of your day. Thank you.
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